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No Zion? No Problem for Knicks and MSG Networks, Analyst Says

(Bloomberg) -- Underperformance for MSG Networks Inc. shares after the New York Knicks acquired the rights to the third pick in this year’s NBA draft, but not the top pick -- likely Duke phenom Zion Williamson -- creates an opportunity for investors, according to Imperial Capital.

What the most valuable franchise in the National Basketball Association does with roughly $75 million in available spending on free agents is far more important than the chance to draft the most closely-watched amateur player since LeBron James, Imperial’s David Miller wrote in a research note to clients.

While the image of Zion following in the footsteps of Patrick Ewing made investors salivate, the opportunity to add All-Stars in free agency would provide a more immediate upgrade, Miller continued. Signing a duo of All-World players like Philadelphia’s Jimmy Butler, Toronto’s Kawhi Leonard, Boston’s Kyrie Irving, and Golden State’s Kevin Durant “ would invariably improve advertising revenue on both the flagship network and MSG+.”

MSG Networks shares are off by 1.3% since the NBA Draft Lottery on Tuesday night, compared to a 1.5% rise for the S&P 500 Index and a 0.7% gain for The Madison Square Garden Company. Shares of MSG Networks are down about 6.2% so far in 2019, versus a roughly 15% rise for U.S. equity markets.

Bringing a pair of All-Pro players to The Garden for the first time in close to 10 years would mean much more to investors than just advertising dollars and television viewership. It would also, at least on paper, “create additional games around the playoffs, which would create an after-glow for ‘big brother’ company Madison Square Garden,” Miller wrote.

A return to the postseason for the first time since the 2012-2013 season would also provide a boost to “single-game tickets, season tickets, merchandise, and food/beverage sales fall under MSG,” he said. Growth in advertising for the Knicks would build on mounting programming for the New York Giants, New York Red Bulls and New York Islanders.

While the Knicks had the worst record in the league -- a measly 17 wins and 65 losses -- the Detroit Pistons clinched the final playoff spot out of the Eastern Conference with a .500 record. So a jump back to the playoffs after adding NBA Champions like Irving and Durant wouldn’t completely be out of the question.